Excesses rise as home insurance market in 'price war'

Thursday, 13 August 2009 07:32

The home insurance market is entering a price war, but excesses are being increased to push down premiums.

A Defaqto report into the market - Home Insurance 2009: New customers only - reveals a seven per cent rise in the number of insurers applying a £100 excess.

Some home insurance providers are putting in £200 excesses.

Mike Powell, principal consultant for general insurance at Defaqto, explained there were two reasons for the increase in excesses.

"The first is to limit the exposure of the insurer and reduce the number of small claims being made," he said.

"The second, and the more likely reason for the increase in excess levels, is that consumers are now becoming more acceptable to a higher excess being applicable.

"Home insurance has previously always had low levels of standard policy excesses, but excesses have been gradually increasing. That being said, consumers still have, with many insurers, the ability to 'buy back' the excess to a level that may be more acceptable."

The report also finds insurance companies are focussing their efforts firmly on new customers - with discounts and free cover.

"This current approach is not creating any loyalty between consumers and is brainwashing them into believing they should automatically shop around at renewal," the report finds.

In 2007, the home insurers suffered major losses from summer floods.

However, no sudden price rise in premiums was recorded - but they have increased steadily. The hope is as the recession bites premiums will hold.

But Mr Powell also highlighted a new trend for higher compulsory excesses for escape of water claims, with some being as high as £250.

"Insurers have included additional wording, which states that a separate policy excess is applicable for escape of water claims," he said.

"Some also state that the excess is in addition to the voluntary or any compulsory excess that is applicable to the respective policy. Others simply state there is a £250 compulsory excess applicable for all escape of water claims.

"Insurers and intermediaries must be clear when advising the customer of the excess that is applicable for escape of water claims. Consumers who purchase home insurance and are not aware of the excess could be in for a nasty surprise when they have to make a claim, and the insurer or intermediary could be accused of not treating customers fairly."

The report also found over the last year, the number of comparison sites - or aggregators - offering home insurance has grown substantially the report finds.

This means people are becoming more sensitive to price and less loyal to big trusted brands.

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